Taoiseach Enda Kenny is pinning Fine Gael’s re-election prospects on a new cut to the deeply unpopular Universal Social Charge (USC) which will leave workers up to €500 better off next year.
In a major pre-election pledge, Mr Kenny will announce his intentions to slash the top rate of USC by at least 1pc in October’s Budget in a bid to court the support of low- and middle-income earners.
The tax cut will be worth €313 per year for a worker earning an average salary of €50,000, and €513 for those earning €70,000.
Slashing USC from 5.5pc to 4.5pc will cost €250m in 2017, with sources pointing out that €1.3bn will be available under the fiscal rules for tax cuts and spending measures.
The move follows a 1.5pc cut in USC in last year’s budget, which takes effect on pay packets from this month.
“Tax cuts make work pay. They are a key element to keeping the recovery going and are central to our long-term economic plan,” a senior Government source told the Irish Independent.
Fine Gael also plans to announce a suite of measures aimed at the lower-paid in the party’s General Election manifesto.
Party strategists believe the election battle will be won on the economy and that a commitment of back-to-back USC cuts will convince voters that the country’s best days are yet to come.
Fine Gael has set itself apart from the Labour Party by pledging to scrap USC in its entirety by 2020.
The junior coalition partner has instead said it will remain in place for those earning €100,000 and above.
Fianna Fáil, which introduced USC, has said the tax will be abolished for all workers earning up to €80,000.
Sinn Féin is the only party that wants to retain the three rates of USC.
In last year’s budget, Finance Minister Michael Noonan announced cuts in all of the rates.
Mr Noonan announced that the top rate would drop from 7pc to 5.5pc for income earned in excess of €18,668 and up to €70,044.
However, the decision to pledge at least a 1pc cut in the main rate of USC will ensure that all workers earning up to €70,000 benefit.
Sources say Fine Gael will insist throughout the election campaign that after a series of tough budgets, the economy now has the capacity to invest heavily in health and education.
“Only a strong economy that supports people at work can pay for the services society needs,” one source noted.
“The cut in 2017 will still leave ample resources for already committed public sector pay increases, demographic pressures on spending, more capital investment, targeted improvements in health and other services, and other targeted tax reforms.”
Taoiseach Enda Kenny is due to launch his party’s digital advertising campaign in Dublin as the election campaign steps up a gear.
But the significant pre-election promise on USC is likely to be seized upon by Opposition parties as being illustrative of the Government’s attempt to buy off the electorate.
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